Here’s a typical scenario for my boyfriend, who has a ton of student debt:
It’s Friday night and he just got paid. Time to go to the bar and celebrate the end of a hard working week, right? Wrong. Between loans, rent, and food for the week, he’ll be barely making it until his next paycheck. Our friends don’t understand why he can never afford to go out or his desire to pay back all of his loans as fast as possible.
“Just stop paying so much,” they say. “Quit putting your whole paycheck towards your loans.”
“The interest!” he wants to scream at them. Instead, he goes home and thinks about how great it would be to not have to worry about being in debt for the rest of his life (or at least the next 10-15 years). He can’t help but think, is there any way I can get out of paying these loans? Can bankruptcy make all my college debt go away?
Is bankruptcy better than debt?
Many graduates are panicking about their college debt and questioning whether the investment they made was worth the cost. Bankruptcy, while at first seems like a good option, may not get rid of student loan debt.
In order to discharge student loan debt in bankruptcy, you must prove that paying back the loans, “will impose an undue hardship on you and your dependents.” This is more than the loans forcing you to skip fun activities or even prevent you from living in the area you want to live. This is about poverty.
According to the Student Loans Borrowers Assistance Bankruptcy, “the most common test to prove undue hardship is the Brunner test which requires showing that 1) the debtor cannot maintain, based on current income and expenses, a “minimal” standard of living for the debtor and the debtor’s dependents if forced to repay the student loans; 2) additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and 3) the debtor has made good faith efforts to repay the loans.”
This means that if you can afford to make the payments without actually becoming homeless or destitute, then bankruptcy won’t help you get out of paying back your college debt.
Student loan debt is constantly referred to as “good debt.”
This means that your education is an investment that will grow and lead to a larger income. Student loans are how you afford a college education, which most would agree means access to a better job and eventually, higher income.
The key word is eventually. Entry level positions for many post- college careers such as design, marketing, and even some finance positions have starting salaries of around $30,000. That’s $10,000 less than many students paid per year for college.
The main problem is that college debt piles up very quickly. At school costs ranging from $10,000 – $40,000 per year the amount of debt (and the added interest) can end up being substantially more than what students make after college.
While I’m not saying post grads are victims, they may not have been aware of the true weight of their choice of college and what this debt entails. At 18, college freshman aren’t allowed to drink and this is the first year they can have their own credit card. These credit cards usually have very low limits, between $500-$1,500, and very high interest rates, ranging from 14-20 percent. The limits are so low and rates are so high because for many students this is their first experience with credit. They can however, decide to take on tens of thousands in debt. Is this really a decision they are ready to make?